The Department of Labor announced Tuesday a proposed rule change that would make it harder for third-party delivery companies to classify their workers as independent contractors.
If approved, the federal government would equally consider multiple “economic realities” to determine whether an individual is an employee, including the extent to which the work performed is an integral part of the employer’s business, the worker’s opportunity for profit or loss, extent of the relative investments of the employer and worker, whether the job requires special skills and initiative, the permanency of the relationship, and the degree of control exercised or retained by the employer.
The DOL is looking to replace a 2021 Trump era rule that weighed two of these factors—degree of control and opportunity for profit or loss—heavier than the rest, and narrowed the facts to be considered.
The goal is to prevent employee misclassification, which leads to a lack of workers’ rights and protections, wage theft, and certain employers taking advantage over other businesses, the DOL said. A survey of gig workers in 2020 conducted by the Economic Policy Institute found that 14 percent earned less than the federal minimum wage and that 62 percent lost earnings because of “technical difficulties clocking in or out.”
“While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers,” Secretary of Labor Marty Walsh said in a statement. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages. The Department of Labor remains committed to addressing the issue of misclassification.”
The proposal will officially publish on Thursday after which all stakeholders will have 45 days (until Nov. 28) to submit comments.
With COVID forcing individuals inside their homes, delivery has skyrocketed in the past two years. From February 2020 to 2022, the ordering channel grew 116 percent, according to The NPD Group. Pew Research Center found at the end of 2021 that 9 percent of U.S. adults were current or recent gig workers, meaning the proposed rule change could impact millions of Americans across the country.
Companies like Uber and DoorDash could see labor costs rise 20-30 percent if drivers were considered employees, estimates say.
“While there is a lot of uncertainty around how the Federal government and States will handle this latest proposal, it’s a clear blow to the gig economy and a near-term concern for the likes of Uber and Lyft,” Wedbush tech analyst Dan Ives said in a note. “With ride-sharing and other gig economy players depending on the contractor business model, a classification to employees would essentially throw the business model upside down and cause some major structural changes if this holds.”
Lyft said in a blog post that the proposed rule wouldn’t change its business model and that it was expected from day one of the Biden administration. The company also noted that “This is just the first step in what is likely to be a longer process before any final rule or determination is made.”
Uber didn’t showcase much concern in its response, either. The company said the proposed rule would return matters to the Obama era, “during which our industry grew exponentially.”
“In a time of deep economic uncertainty, it’s crucial that the Biden administration continues to hear from the more than 50 million people who have found an earning opportunity with companies like ours,” Uber said in a statement. “We look forward to continued and constructive dialogue with the Administration and Secretary Walsh as this process progresses.”